Reflections on my time in Y Combinator
chrisfrantz.com
chrisfrantz.com
Seeing founders with less care for detail and more for the sheer growth of their user base was impressive and deflating.
It felt like everyone I compared myself to, they were devoting 90% of their time to selling and 10% to building.
I share the feeling. There's success stories of companies doing the same (e.g. Notion, Replit), so I know it's not completely off-book, but I constantly wonder whether there is downside to that approach of focusing on sales in the beginning. I can guess things like less likely to be innovative, but is that true? Maybe since they average being alive longer than the ones that focused on product in the beginning, any potential downsides are negated in the long term (e.g. just innovate later with the infinite runway they now have). Would love to see some study/survey on this.
As my beard starts to grey, I've come to the conclusion that needing to drop a lot of money to retrofit is an infinitely better problem than not having captured a large segment of the market.
As someone who did Perl commercially from 2001-2019, most of my career was spent working at companies who'd done a large Perl build-out some time between 1995 and 2005, made a lot of money and captured a large amount of market share, and were now expensively retrofitting a lot of very, very nasty code that inexperienced programmers had smashed together in a rush.
Much better to be in that position than a company with a beautiful codebase who didn't capture the market
For sure. But I wonder how many are prevented from capturing a larger segment of the market because of poor design decisions re more fundamental primitives of the product. I suppose the worst case scenario here is a complete rebuild and migration.
i think where people are more borderline is if they can raise at a decent seed valuation elsewhere already (eg based on existing revenue or prior reputation/technology being far more established).
It's well understood that YC has some value add. So the fun question is - what is the valuation you can raise at which it does NOT make sense to enter YC?
YC values you at ~2m when they invest (120k divided by 7%, 380k MFN SAFE aside). Lets say you come out of it worth $10-20m on average. Maybe the connections and other stuff gives you value worth $5-10m. so if your business is valued above 15-30m you should consider NOT going into YC.
Is that a good way to think about it? any of these numbers you would change?
If you speak to YC alumni, you'll hear from many of them that YC made them dream bigger. There's a founder in the comments here who said YC was an "ambition multiplier" for him[1]. How do you value that?
the goal of rational decisionmaking is to try to convert all factors into some kind of comparable numbers, and $ is just one utility function on which to project all these nonmonetary qualities. call it "utils" if you like (https://en.wikipedia.org/wiki/Utility#Cardinal).
so fair point if you disagree with 5-10m of nonmonetary value equivalent. Is it more like 50m? 100m? what is the lowest you can make the upper bound?
a fun academic question for most, but for me personally, i have been offered a $2-3m seed pre product so that suddenly became a lot more real.
PG once formalized YC value prop as average outcome multiplier [1]. Whatever the current valuation, would YC improve your expected outcome over lifetime of the company on 7.5%? If yes, then you should do it.
this feels like a second order analogue to the "ideas vs execution" debate - we know that idea is worth ~0, execution worth ~100 - but the harder question is - what is YC-fueled 3 months (where lets say you spend max 24 hours with YC partners/peers/events) + say 1-2 years worth of residual relevant connections worth vs a ~10 year hard grind on your own?
not gonna get the answer here but was fun to contemplate :)
the realer answer is have about ~16 years of being in love with/thinking about microeconomics. maybe do some math/linear algebra (where you get very used to projecting spaces onto different dimensions), and then make a few high stakes decisions with regards to job negotiations optimizing for cash, salary, learning value, career path, etc.
but dont think for a second i have any of this figured out haha. i just write well.
i always suspicious linear algebra was very useful in representing probabilistic outcomes and your answer confirms my hunch. ;)
good day
If it weren't for YC one would have to spend 50% of their working hours having coffee chats and preparing demos, since investors generally had their own contorted idea of what a good demo is before they would invest, and it was usually not what the customer wanted. Being able to get twice as much work done in return for 7% was a good deal.
I don't think that applies anymore, sadly, with the large batch sizes they accept now. Nowadays you'll have to waste half your summer having coffee, not have guaranteed investment, and still give away 7%. Not a good deal.
Also, if you live in the bay area, it's fairly easy to come across most YC advice and get investor intros just by going to enough house parties with seasoned founder attendees.
Especially if your startup isn't purely software, and involves some operational or hardware expenses, $500K is a no-go.
It's also the ballpark of what 2 technical founders could easily make by working for ~6 months in the bay area, and not have to give away any equity at all.
So if you're doing it for $500K, I'd say there are better ways to get $500K than giving up 7% of your company.
Now if YC handed out $2M and cut their batch size by a factor of 4 (being more selective in their applications), I think it'd be a really good play for them.
I think you're assuming the two founders don't need to pay rent or taxes.
"We have an idea that's not materialized yet, give us money so we can live comfortably and reap all benefits it it works out and not lose anything if it doesn't." - sounds like a wishful thinking.
No, it is risky, and you want to actively eliminate as many of the risks as possible. Having a decent sized pile of cash is one way out of several of the risks. Supply chain shortages, founder medical expenses, mishaps and accidents, rising costs of living, personal emergencies happening to founders or employees requiring leave, there are a million things that will bite you if you don't have cash and runway.
"Supposed to be risky" isn't a good way to think about it, IMO. A lot of the time you'll hear people romanticize a couple of fresh graduates living on couches in a garage, living on ramen, and building a unicorn, but the reality is that most billion-dollar companies weren't actually built that way, and it isn't the best way to optimize your chances of success.
For example, if you graduate with an engineering degree, can code, and don't have any grave medical conditions or loans to repay, I'd wholeheartedly encourage trying to start a company if you want to. It's risky in that the company would have a 95% chance of failing, but in that case you still learn a lot and it's fairly easy to land a job if you keep up your technical skills.
If you're stably married, your partner earns a high income in a stable job, and is supportive, that's another case where I'd say go for it, take the calculated risk.
In a lot of other cases, such as if you're knee deep in student debt, or (live in the US + have a medical condition + not a lot of savings), I'd advise building up a modest amount of savings first.
It really depends.
Do you think this is realistic getting access to these just by living in the Bay? I don't think so.
Yes, if (a) you're nice and approachable (b) you're working on something interesting (c) are reasonably good at socializing, it's pretty easy to ask around and get looped in on such events. People here are pretty open about having interesting friends-of-friends show up to house parties.
Guess I need to (b), get more internet cred, and actually branch out to internet people rather than familiar territory.
In larger companies, it is just accepted to invest the enormous amount of design time into these things but in a startup, anything that hogs your time over selling should be an alarm bell.
It would be different if you were producing a massive UI-dependent product but this sounds like fairly basic sass that doesn't need a Figma design, certainly not initially.
One big thing that YC did for me is it was an ambition multiplier. Pre-YC I thought it'd be cool to make software that could just pay my bills. A year post-batch and I find my default state is much more ambitious than before.
It's a crazy feeling seeing so many people start from 0 and the progress they can make in just 3 months. YC helped me and my company tremendously.
When you talk about an "ambition multiplier", do you mean personal wealth? YC is great for receiving favorable terms in the future. But you can't really take that money out of the firm, or pay yourself some stupid salary. It's just paper wealth. And a bigger valuation and more ambitious growth usually means scaling up a lot faster (fail fast), rely more on future rounds and maximize your valuation.
For a fund they'd prefer a 10% chance for $100 million valuation to 90% chance for an $11 million valuation, but personally I would prefer a 90% change for a million opposed to 10% chance of 10 million, because I can't diversify and run 10 startups simultaneously like a VC can. So I guess that's the downside of the "ambition multiplier"
My first I thought I’d be lucky to land a entry level gig and did so well I become the lead engineer over a couple of guys within a month (as soon as we found them.)
I would never have gotten that experience that fast. Sure looking bad I was a senior at entry level because I had practiced so much: but at a traditional corp I would have had to wait years to get to that level of experience where YC basically throws you at it and hopes you don’t fail
But you no longer have a choice right? Now that you're VC funded you're expected to hit that 1000x valuation?
Sure, you're investing in the person, but you either have the right experience or not. If you had the right experience and a product, you should probably look to bootstrap or other funding options.
A stat I read before is that 29% of the batch has just an idea while 10% had more than $50k of monthly revenue when accepted. Imagine being that guy that grinded to create a business that's generating a million a year and getting the same terms as some dude with just an idea and "the right experience"?
https://www.ycombinator.com/blog/meet-the-yc-winter-2022-bat...
It's just odd to me that someone can compare a million dollar ARR business with a cocktail napkin business sketch and give the company's equal terms.
The failure rate in the startup world, especially when success means a billion dollar exit or IPO, is incredibly high though.
If an investment of 7% for 750,000 makes sense go for it. Who cares if someone else gets 8% or 6%.. it's not your money.
It's not even consistent with YC philosophy about the idea doesn't matter, MVC, get to revenue fast, etc
It remains irrelevant what deal others are getting.
Yes. If you compare what you did vs what they did. But really it's like winning the lottery and complaining that some other winner bought less tickets.
Imagine actually getting into YC and turning it down because someone you think is less worthy also got in.
Tbh it sounds quite entitled.
At worst those other companies are unrelated. At best they are inspiring.
If you get into YC and you actually have a product or revenue, it's almost certain that someone else would give you better terms because they care about product or revenue. It's like getting a 1600 on your SATs and going to a school that doesn't check your SATs. Is it the best school for you? Maybe, but prob not.
Obviously a big win can erase a lot of misplaced bets, but I wonder how many of the pure idea, low effort startups ended up reaching major success.
To me it speaks of a non serious/committed entrepreneur, because the amount of cash that Y combinator supplies makes no material difference in the ability to actually bootstrap the project.
I’ve been through multiple YC companies now (arriving right after they were funded) and they all pretty much throw money to these code monkey shops that target YC and work with them.
Not just that but I’ve met “scrum masters” who’s entire schtick was consulting YC firms (or other early stage startups) and brought to the table senior engineers of below or equal to mid level quality.
I’d really hate to see how many founders with good ideas saw there time and effort wasted due to a trusting of firms like these.
If that doesn’t fit where you’re at in your career that’s understandable but all systems of decent scale will have horror stories.
I remember a company I worked for went through a YC interview.
We were rejected with "we are not sure you can deliver".
At that point, we had built 2 mobile apps, a big customer wesbite, rich portals for partners, contractors and admins, had thousands of customers, were almost profitable. Our CEO had a history of delivering in that he sold his previous startup.
I must sound bitter, but it's pretty gut-wrenching when someone gets throgh by making UI mockups during a zoom call.
Now that I think about it, you mentioned you had a laugh together.
Like with everything in life, there's probably a big subconcious bias towards people you like that extends to products they build.
YC can be thought of as a tech startup affinity network. The"shocked-pikachu face" attitude of the author, from being surprised a napkin worked for funding to being amazed that YC-affiliated startups gave him revenue before a product is live, is a testament to the YC model. Either the author is unaware of this obvious inside-network effect or they are pretending it doesn't exist. In the real world no random enterprise cuts you a check for untested, pre-live, alpha software. It is the SaaS cross-selling YC scheme that enables this.
I'm not even saying this is necessarily a bad thing. It's just a very unique model that is a warped inversion of real-world economics, and it decreases the risk for investors provided the whole network can continue selling into each other.
You’re overestimating the magnitude and importance of selling inside the YC network.
ps. I'm looking for a one angel investor about 70k for my next app and don't know where to start looking. Already have few national apps making revenue and multiple made for customers, but nothing like this international one..
Interesting, I didn't know YC allows this. Are there any well-known (atleast within technical circles) YC companies that have done this?
In my opinion, you should do everything you can to maximize your valuable time during the YC batch, so it'd make sense to work harder then. But even a startup is not everything in your life. If you have a family and kids, those need time also.
What are they going to do, take their money back because you didn't meet their ludicrous immediate-term expectations?